January Sees Australia’s Home Loans Drop Unexpectedly

canstockphoto7017202Home loan approvals dropped to a seasonally adjusted 1.5% for January 2013, compared to the December performance, to reach a total of 44 383 for the month. This news comes as a surprise after analysts had predicted a 0.5% increase. On a more promising note loans for investment properties increased by 4.4% compared to the month of December, according to data from the Bureau of Statistics.

The news is also disappointing in light of the need for the country to find revenue to fuel the economy and replace the gap that has been left as the mining resources boom has fizzled out. Housing one part of the economy that is being looked to in order to fill this gap and has not performed to expectations.

Approvals for funding for the construction of new homes dropped by 0.2% between January and December, putting the construction industry under even more pressure, while finance approvals to buy new houses increased by 2.3%. Lending for pre-existing homes dropped by 1.9% for the month.

It was not just economists who reacted to the news with surprise. News of the drop in the housing market took its toll on the share markets with the announcement resulting in the Australian dollar trading lower against the US currency.

It also came about after the announcement of the results of a business confidence index, compiled by one of the major banks, reported a drop from 3 to 1 between January and February, and was considered a double blow to the outlook for the economy.

Despite the news, it hasn’t been all bad as the world’s 12th biggest economy reported solid GDP results in the fourth quarter and the Reserve Bank opted to leave the interest rate unchanged which some have read as a sign of the central bank’s contentment with the current state of the economy. Some analysts are not too confident about the prospect of another rate cut, however, at the central bank’s next meeting however.

Other views seem to suggest that the slump in housing market activity could give the central bank good reason to consider another rate cut. One economist cited the fact that this was the fourth successive month that approvals had fallen in, and that it was thus a sign that another rate cut needed to be factored in in order to stimulate some activity. He said that the implication was that the general sentiment was reserved and that the average consumer was apprehensive about the prospect of acquiring more debt, despite the fact that the last 18 months have seen the RBA make significant and generous attempts to stimulate the market back into action with its rate cuts. He said the data definitely suggested another cut was required.

Between November 2011 and December 2012 the RBA dropped the national cash rate by 175 percentage points to reduce it to where it sits currently, at 3% but, to date, no major developments have emerged as a direct result. The RBA’s activity has seen mortgage providers become more competitive with many of them offering online home loans at reduced rates, one example of which is the Bankwest online home loan.

Another analyst claims that the RBA’s rate cuts from January have yet to take effect in the market and that consumer confidence had seen something of a recovery in February, intimating that the next few months could still reflect positive growth. Despite these factors he said that he did not expect further action to be taken by the RBA to drop rates again this year, in light of the four cuts that had been implemented in 2012. Instead, he said that the economy was likely to benefit from the action taken late last year, and that the central bank would remain cautious about dropping rates too low.

Wealth Creation and Saving Strategies | OnMoneyMaking